EU Investment Law and Arbitration

The Pechstein Judgment Emphasizes the Virtues of Arbitration

by Nikos Lavranos, Secretary General of EFILA

On June 7, 2016, the German Federal Court (Bundesgerichtshof, BGH) published a press release summarizing its judgment in the Pechstein case. Since the judgment itself has not yet been published, the following blogpost is solely based on this press release and other publicly available sources.

This case revolves around the attempt of Ms Pechstein, a world class speed skating champion, to annul an award by the Court of Arbitration for Sport (CAS), which had imposed a 2 year suspension on Ms Pechstein for suspicion of doping. Ms Pechstein always denied any doping and claimed that any strange blood levels are due to an inherited condition.

In order to be able to participate in international ice skate races, Ms Pechstein “voluntarily” signed an arbitration agreement with the International Skating Union (ISU) referring disputes to the CAS.

Ms Pechstein challenged the ban before the CAS, but in 2009 a CAS arbitral tribunal upheld the ban, finding no evidence of an inherited condition. She subsequently tried twice to have the award set aside before the Swiss Federal Tribunal in 2010, without success.

Ahead of the Winter Olympics in Vancouver in 2010, Pechstein turned again to CAS to challenge the German Olympic Committee’s not to select her for the national speed-skating team because of the ban. However, an arbitral tribunal of the CAS’s ad hoc Olympic division chaired by Yves Fortier QC rejected that challenge too on the basis of res judicata.

Subsequently, Ms Pechstein turned to the German courts, seeking €4 million in damages from the ISU for loss of income caused by its breach of its dominant position.

While in 2015 Ms Pechstein was successful before the Munich Higher Court, which accepted that her argument that she had not freely agreed to arbitrate at CAS as her consent was a condition of her participation in international competitive speed skating, the German Federal Court overturned that decision.

Most importantly, the Federal Court declared the CAS to be “a real tribunal for arbitration” and that “the global fight against doping is in the interest of both the organisations and those of athletes”. While the court agreed that the skating union is in a dominant position, it said that its conferral of exclusive jurisdiction on CAS to hear disputes is not an abuse of its position as it is based on the “mutual interests” of ensuring that sport is clean. The Federal Court also stressed that there was no “structural imbalance” at CAS, which would imply that the CAS arbitral tribunals’ decisions are skewed against athletes.

Whether or not the German Federal Court’s ruling is considered right or wrong, one conclusion is clear: this judgment is a massive support for arbitration.

More specifically, the Federal Court considered the finality and speed of the CAS procedures to be of particular importance. The exclusivity of CAS arbitration ensures that parties cannot circumvent the system by turning to ordinary courts. In this way, consistency and finality of the arbitration proceedings are ensured.

Nonetheless, there has been critique on the CAS arbitration system, in particular regarding the closed list of arbitrators. Considering the CAS’ case-load of more than 500 new fillings last year alone, it is obvious that the closed list of arbitrators must be opened up, in order to avoid repetitive appointments of the same arbitrators, who have too many cases on their plates and therefore are unable to deliver their awards in a speedy manner.

Indeed, the CAS is a perfect example that speaks against the use of closed lists or rosters of arbitrators, which has become fashionable in recent investment treaties. Only the free choice of arbitrators will enable the parties to select the arbitrator they consider most suitable, which includes also the actual availability of the arbitrator.

The judgment of the Federal Court also underlines the importance of keeping domestic courts out of the arbitration proceedings. Turning to domestic courts in parallel to arbitration usually only increases the costs and delays the proceedings without a real chance of a “better” decision.

In sum, the Pechstein case is a very good example, which strongly supports the virtues of arbitration, which are finality, quality and speed. This is a message that the European Commission and the Member States should take into account when negotiating investment treaties with arbitration provisions such as for example TTIP.